Editor's Note: Our Gaming Lodging & Leisure analysts added Boyd Gaming (BYD) to their Best Ideas list on 9/25/2015. Since then the stock has gained 17%. Here is a brief recap of a note they released earlier today.

In Q3, BYD delivered on the tenets of the long thesis we laid out in our 9/25 conference call/presentation - growth in Las Vegas and AC, stabilizing regional gaming trends, and operational improvements combined to produce a big beat and higher Q4 guidance.

More good news: it looks sustainable.

We remain positive on BYD as earnings visibility continues to improve and the locals Las Vegas market (remains well below peak) and Borgata could provide upside. Moreover, while BYD is making progress operationally, there is still significant room for higher productivity and margins across the portfolio.

**If you're an institutional investor and are interested in subscribing to our research please send an email to sales@hedgeye.com.

DMND | WHO WILL BE PICKING UP THE PIECES? LOOKS LIKE K

The original LONG thesis on DMND was based off of margin improvement, and/or a strong chance of it being acquired. It appears that the latter will be coming true as a rumor has broken out about Kellogg (K) acquiring the entire company for somewhere between $35 to $40 per share. With the stock currently at $34.57 up just 5.30% from yesterdays close of $32.83, doesn’t seem that there is much additional upside.

The real question is how desperate is DMND to sell, will they look at this range as a fair value? Or will the Board require a greater premium in order to sell the company? We think up to $40 is what DMND is worth, but not more than that, leaving little upside from the current share price.

THE PIECES

Previous reports said they were struggling to sell the company as one unit. No surprise here, Pop Secret and Emerald are less than desirable assets. Pop Secret is in a category of the past, as consumers prefer Ready-to-Eat popcorn over microwave varieties, and Emerald, a lower tier brand competes in a category where prices are high, giving anyone with the edge on price (private label) the edge on the market.

Kettle Chips seems to be their saving grace from a sale perspective and will without a doubt obtain the highest purchase price multiple. Kettle is not without its challenges though. They compete as a regional brand in a very saturated market with the likes of PepsiCo and Synder’s-Lance, making it very hard for them to gain serious distribution versus the competition.

HEDGEYE OPINION

What does this mean for Kellogg? If they turn out to be the eventual buyer, we will still be keeping K on the SHORT bench. Although we like their further diversification of the portfolio, we don’t like Pop Secret or Emerald. We do believe that Kettle will be a great buy, as K will be able to expand the brand more effectively given their distribution capabilities versus DMND.

Please call or e-mail with any questions.

Howard Penney

Managing Director

Shayne Laidlaw

Analyst

Share

Print

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

DNKN | THE DONUT TRACKER

Our Healthcare Team has developed the Macro Monitor, a web-based tool for identifying relationships across thousands of data sets. They have since expanded the Macro Monitor to include restaurant related macro and company fundamental time series. We started the process several months ago and have identified several relationships that we think are interesting and worth tracking over time. Our plan of action is to continue to build out our data sets and capabilities using the Macro Monitor and come out with additional high frequency trackers that provide a read into the company’s fundamentals. This note represents our first tracker, THE DONUT TRACKER, right now we are using it to focus on DNKN, but will expand it to KKD in the near future.

DNKN is a name that we track very closely. That being said, it has not been on the immediate radar screen, but it is moving up the list. The business model is enviable, but only if they are generating positive same-store sales. Same-store sales for DNKN are important, but only as a leading indicator for future development.

With the company making $0.02-$0.03 in EPS on every new store opened, development is crucial to the overall DNKN story. Once same-store sales trends turn negative the development pipeline will begin to slow down as franchisees will not want to open up stores at the same rate.

ADDING IT TO THE SHORT BENCH

In this context, at 13.4x EV / NTM EBITDA the stock is overvalued. As a result, we are adding DNKN to the Hedgeye Restaurants Best Ideas list as a SHORT, but on the BENCH for now.

The company has guided to 1-3% same-store sales growth for 2015 and 2-4% over the next five years. Same-store sales are currently tracking at the low end of expectations. In 2015, they will open 410-440 total net units (excluding the speedway closures). Over the next five years they will grow units 4-6% versus 5.1% and 5.3% in 2013 and 2014, respectively.

Given the current trends in same-store sales over the past three years and the increased competition, DNKN sales trends are under pressure. No question DNKN will be one of the companies that will be impacted by a resurging McDonald’s.

THE DONUT TRACKER

Given the size of the DNKN system it will be difficult to get a good read on system same-store sales by talking just to franchisees. In addition to our conversations, we will be looking to other sources of data to indicate how sales trends are faring. Over the past year we have tracked a number of other reliable indicators that show a strong correlation to DNKN quarterly same-store sales.

Consumer price index (CPI) and producer price index (PPI) information provided by the Bureau of Labor Statistics (BLS) has proven to be a good indicator of the overall trend for DNKN. Below we provided four charts out of the 6-8 that are working well since we started to track them. CPI – Bakery Products YoY % is the tightest, and most relevant correlation to DNKN SSS at a 0.89 correlation. We find this to be very indicative of performance given its strong relevance to DNKN and the tight correlation over the last five years.

With these indicators being reported monthly we can get a strong sense of how sales are trending intra-quarter. We will be using these data sets in order to get a read on the trend and what to expect from DNKN. In addition, we will monitor menu changes and quarterly LTO’s to gauge how the company is managing the business.

We would also note that DNKN reported traffic declines of 70bps last quarter. Over the last couple of years the company has increased menu complexity and used price aggressively to drive same-store sales. Both of those actions are separate issues that will need to be addressed if sales trends continue to decline.

We will continue to update you on the progress of our trackers on a regular basis.

Please call or e-mail with any questions.

Howard Penney

Managing Director

Shayne Laidlaw

Analyst

Share

Print

10/23/15 02:18 PM EDT

Big Hedgeye Healthcare Victory In This Battleground Stock | $ATHN

Takeaway:Our Healthcare team scores big long Athenahealth and short AMN Healthcare Services.

It’s been a huge week for our healthcare team. Two monster calls which have worked out very well.

ATHN shares rocketed over 24% after delivering strong 3Q results. The healthcare technology company continues to take market share as it builds product awareness among physicians.

(Case in point? Check out the company's hilarious, new #LetDoctorsBeDoctors campaign, with full-fledged music video featuring doctor/rapper ZDogg, in “EHR State of Mind”)

Tobin sees at least 30% upside from here.

Here's an update on ATHN from Healthcare analyst Andrew Freedman post today’s run-up in the stock:

“The quarter was very strong across most key metrics. But Doc adds were the big upside surprise in the quarter with 3,953 net collector physicians added compared to 2,846 consensus. While we flagged the sequential acceleration in our ATHN practice tracker in the quarter, we were still surprised by how strong the number was.

Despite a seasonal dip in bookings in Q3, management stated that they are tracking in-line with their 30% bookings target year-to-date."

We maintain that ATHN is a $200+ stock as they are best positioned competitively to take share in a consolidating ambulatory practice management and EHR management.”

Another big win (this time on the short side) is AMN Healthcare Services (AHS). It's plummeted a whopping 17% on the week after a number of hospitals, including HCA and CYH, reported disappointing quarterly results.

Even though the stock is up today, we’re sticking with our bearish call. Here’s another update from Freedman:

"AHS came under pressure this week as the hospitals continue to report disappointing volume growth related to the #ACATaper. Hospitals have been on a hiring spree to catch up with incremental ACA related demand, and now that is starting to slow as evident by the most recent Healthcare JOLTS data.

With think organic growth collapses in coming quarters and stock that ultimately trades back down to the mid-teens."

FMHQ (Friday Morning Housing Quant)

Takeaway:It was another strong week for builder stocks as the average builder is now up +7.2% QTD. BZH rose 8% in the latest week.

Our FMHQ (Friday Morning Housing Quant) tables present the state of the publicly traded homebuilders in a visually-friendly, quantitative format that takes about 60 seconds to consume.

Quick Quant Takeaways:

Performance Roundup:Housing stocks put in another very strong week with the sole exception of Pultegroup (PHM), which sank on disappointing earnings. Interestingly, PHM is the one builder that has historically put up underwhelming 4Q returns so it begs the question whether there's something recurrent going on there. Returns remain extremely strong almost across the board with QTD absolute returns for ITB and XHB at +6.4% and +6.0% vs the S&P 500 +6.9%. Meanwhile, the average builder from our tables below is +7.2% QTD, while the median is +6.4%. Our preferred four horsemen of 4Q among builders are KBH, BZH, LEN & NVR, which are +2.4%, +14.2%, +7.7%, +8.2% QTD. BZH had a monster week, rising 8.0% on the week, while LEN and NVR were +4.1% and +5.8% on the week, respectively. KBH, meanwhile, declined by -2.5%.

Insider Buying: Not much to report here, as there's been none recently.

Beta: The highest beta names (1YR) remain HOV (1.45), KBH and BZH which are tied at 1.30. At the other end of the spectrum, the lowest beta plays are NVR (0.60), MDC (0.89) and TOL (0.98).

Short Interest:DHI, HOV and KBH have seen SI creep higher, rising as a % of SO by 2.6%, 2.6% and 2.2%, respectively in the latest month. BZH has seen SI fall by 0.8%.

Sell Side Sentiment: MTH has seen the largest drop in sell side support, while BZH, TMHC and DHI have seen the largest bump in support.

Valuation: The cheapest names in the group currently are BZH (9.6x), TPH (9.5x) and TMHC (9.5x), while the most expensive are NVR (15.3x), LEN (13.4x), and TOL (13.4x).

Joshua Steiner, CFA

Christian B. Drake

Share

Print

the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

Thank You!

Your request has been received

You have been added to our list and will receive an email shortly.

If you do not receive an email, please check your spam filter, and then email
support@hedgeye.com.
By joining our email marketing list you agree to receive emails from Hedgeye. This is a distinct and separate service form any of our paid service products. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.